Good day, ladies and gentlemen, and welcome to the Daktronics fiscal-year 2011 first quarter earnings results conference call. As a reminder, this conference is being recorded today, Tuesday, August 24, 2010 and is available on the company’s Web site at www.daktronics.com. I would now like to turn the conference over to Mr. Bill Retterath, Chief Financial Officer for Daktronics, for some introductory remarks. Please go ahead, sir.

Thank you. Good morning everyone. We appreciate your participation on our first quarter fiscal 2011 conference call. We will give some brief comments about the quarter to start with and we’ll open it up to few questions and answers after that. I would like to first offer our disclosure cautioning investors and participants in addition to the statements of historical facts, this call and our quarter-end news release contain forward-looking statements reflecting our expectations and beliefs concerning future events which could materially affect our performance in the future. We caution you that these and similar statements involve risks and uncertainties including changes in economic and market conditions, management of growth, timing and magnitude of future orders and other risks as mentioned herein in our press release and our SEC filings which may cause actual results to differ materially. Forward-looking statements are made in the context of information available to us as of the date of this call. We undertake no obligation to update or revise such statements to reflect new circumstances or unanticipated events as they occur. With that, I will turn it over to Jim Morgan, our Chief Executive Officer, for some comments.

Thanks, Bill, and good morning, everyone. Thanks for joining us this morning. Overall, we were pleased with the results for the quarter. Our operating margin of 4% is not where we want to be but it is a significant improvement over the past few quarters. It is also noteworthy that this is an improvement over the first quarter last year despite the fact that we had higher sales in the first quarter a year ago. This is indicative of the positive impact of the cost reduction we have achieved across the organization over the past few quarters. We are pleased with the order bookings of $117 million for the quarter, and with only $100 million in sales, we built our backlog to $143 million as noted in the press release. The summer is typically our busy season and it's a good sign that we are indeed busy this quarter. Bill will talk a little more about backlog in a minute. Regarding the outlook, we recognize that there is still uncertainty in the overall economic outlook; however, as we discussed in the news release the comparison of orders over the last few quarters is up over the same timeframe last year despite our domestic sports business lagging somewhat, and we see that as a positive indication. Just to give a flavor of some of the order activity in addition to the orders mentioned in our press release, our order this quarter in the international front included a multimillion dollar order in the Middle East for the Qatar Convention Center and a baseball venue in Mexico that exceeded $1 million. University football orders included orders from Marshall University, Southern Methodist, George Washington University and Notre Dame. We also received an order for video displays for Remington Park Racetrack in Oklahoma City just…

Thanks, Jim. As Jim mentioned, let me start out on backlog. As stated in the press release, we have a number of projects in backlog that stretch beyond our second quarter. This includes, for example, $35 million to $40 million of larger projects over $1 million such as the Florida Marlins, the New Jersey Transit Authority, most of the large billboards, the Clear Channel order we already mentioned, the Milwaukee Brewers and a commercial project in Minneapolis. So although we think that sales could increase in the second quarter from the first quarter, the amount of the increase is somewhat limited. Hopefully, this base of backlog helps us as we move into the third and fourth quarter to the extent bookings can hold up. The gross profit percentage increased from the fourth quarter of fiscal 2010 and is at the same level it was one year ago. As mentioned on our last quarterly conference call, we thought that warranty and inventory hits were high and if they went down, we could add a few percentage points on margin. And that is the biggest factor that impacted margin. Hopefully, we can continue keeping those costs in check and lower as we go into the future quarters. We also saw the benefits of reducing our remote service infrastructure, which added about a percentage point. We saw slight increase in margin on contracts booked during the quarter, which should help slightly in future quarters. Assuming that we can keep control of inventory and warranty and that our raw material supply chain doesn't inhibit sales or increase materials costs, our gross profit should be at similar levels and it's possible it could go a little bit higher but again, gross margin sometimes is hard to predict on large contracts. On operating expenses, we suggest…

(Operator instructions) Our first question comes from Steve Dyer from Craig-Hallum.

Thank you and good morning. Nice quarter guys.

Thank you.

I was wondering if you could elaborate a little bit on the digital billboard commentary you made. It sounds like Clear Channel back placing kind of an initial order. Any color on the size of that and maybe the duration or what their indications are to use sort of as what their plans are going forward with the digital boards?

Well, we don’t want to get into specifics on customers' orders and sizes. It’s a multimillion dollar order and we’ll say that’s significant. Pretty much for delivery through the rest of the calendar year in terms of timeframe, we'll frame it up more or less.

Okay. And then the other major customer – any new activity there from them, in terms of getting back on board, rolling them out in size.

Nothing specific at this point has changed. We see – I guess there is – both (inaudible) and Clear Channel are the two which we're talking about here, both of those are public companies and so they have made some public statements that are positive about digital and so we're encouraged by that and, again, we’ve had very good reception of our new 4000 Series digital billboard which has a number improvements as well as reduced cost – improvements in performance at reduced cost. So I guess we're optimistic on both fronts that things will continue to move forward there.

Then I am just wondering kind of how we should think about sort of your market share at either or both of those going forward. I think historically it has been at around 50%. Is that sort of the assumption going forward as well? Or is it too early to tell?

As it was back before the downturn and then, you know, we are supplying to Clear Channel here for about the last year. But certainly we would hope to get back to that point.

Okay. You mentioned a little bit about parts shortages in the press release and potentially impacting sales going forward. Can you elaborate on that a little bit more, maybe what the part is and sort of how you see that playing out?

So, there is a global thing right now with electronics supply in general. It's not necessarily one part. You read about this actually quite a bit in the press release. Some of the consumer electronics has taken off. Obviously, Apple's had great success with their iPod and so there is some real demand in the electronic side of things from the consumer side. Many of the manufacturers of electronics had scale back going into the downturn, and so they just aren't ramping up fast enough to address the demand that's coming up. So there are some parts that from time to time come up that lead times are going way out on. And so depending on what one has forecasted and what suppliers have in the pipeline coming in for a customer, it can affect the ability to deliver. So it's fairly widespread. Of course our approach is to do our best to forecast and we have very close relationships with our key vendors and that's how we look to manage that situation, but it is challenging and, you know, there's always a chance of a surprise coming up here or there.

Okay. And then a final question and I'll hop back in the queue. OpEx, Bill, I think you kind of broke out each line item, engineering should stay under 5, G&A up maybe a little bit. Would you expect selling to kind of fluctuate on a percentage basis with the overall revenue number?

Well, on a short term, selling expenses are generally fixed. Our model does not include a commission component. And so, you know, in the short term, I think work for a similar level. But there is a little bit of fluctuation. It is not necessarily associated with revenue. It's more associated the order volume.

Okay. Okay, thanks guys.

Thank you.

Our next question comes from Jim Ricchiuti from Needham & Company.

Hi, good morning.

Good morning, Jim.

Just some follow-up questions on the commercial business. I wondered if you could comment on the billboard business, excluding the large order you saw. How would you characterize the billboard business in general, just from some of the smaller players? Are you seeing a pickup in activity as well from them?

We are seeing a very strong interest from the Tier 3 and smaller companies. They report to us. They are seeing good return on their investment. And so we are – it's very positive.

Looking at the commercial business in general, you showed a very good order strength the last couple of quarters. If we just look at that July bookings number and maybe break out the large Billboard order, can you give us some sense of the magnitude of the year-over-year increase?

Maybe, this is Bill. I’ll just give you some indication. Our orders from product orders within the billboard business increased sequentially from Q4 maybe roughly 10%. From a year ago, billboard orders excluding the big order we mentioned with Clear Channel, it’s up 50% from a year ago. Now the orders a year ago were – I think that might have been our low point for orders one year ago. I don’t – sorry Jim, what was the rest of your question?

Well, I was also just curious about the commercial business in general, excluding this large piece of business. And what I'm getting to is just are you seeing some signs of a pickup perhaps in some of the other areas of your commercial business? The national retail accounts, the QSRs and whatnot?

I think that compared to – it's stronger than it was. We're seeing that it’s picking up but have seen a gradual pickup. It's not been a jump-up, but there seems to be more strength there and little more positive outlook going forward on more of the standard order business. I might add that we are seeing on part of our commercial business is the large projects like the Times Square kind of things. And we are seeing some – they are some opportunities in our pipeline out there too. There are some big projects that are scheduled to happen out there.

Yes. And I wanted to follow up on a couple of comments you made in the press release. Jim, just about the architectural lighting part of the business and the activity you're seeing there. Maybe you could expand a little bit about what's happening there. I think you alluded to a large order that I guess you booked in the current quarter in Hong Kong. But maybe you could talk a little bit about what you're seeing in that part of the business?

So the application for architectural lighting is – it is very large because potentially any large buildings could be outfitted with some of this kind of lighting. Again, the application for architectural lighting that we are involved in is where there is actually a control – it has a control system on it and it is a controlled image type of an application. But that has been quite popular in Asia for a number of years already and we are starting to see that – starting to get a foothold in the US and some more interest in it here. We actually are installing some of that type of display technology as part of the Orlando Magic project on the exterior of the arena down in Orlando. And we are seeing some other – we've had few other projects in the US and we’ve done over the years, but we are seeing some more opportunities for that both internationally and starting to see a little more activity in the US as well. So we are excited about it. Again, it's the kind of thing that can get adapted to most any high-rise building. The Target center in Minneapolis is – sorry, not the Target center, but the Target headquarters building is – in fact, we talked about in the news release and that will be – it’s a multimillion dollar project and that will be very high profile. And here I think it will be a reference point for the use of this technology.

And just turning to the live events business, you mentioned as you look out to Q4, there's still some uncertainty as it relates to the baseball portion of the business. When would you anticipate a better – when would you anticipate having a better feel for how Q4 is going to look? Typically, is this quarter an important quarter and for baseball bookings or is it the fiscal third quarter for you now?

Certainly, some of those potentially could book in second quarter, but it's not unusual for some of those to book in the third quarter as well. So it's a little both. So we'll know more – at the end of second quarter we’ll have a better sense of where that is, of course because we will be three months closer to it. But it’s a little of both quarters.

Okay and then two final questions. I wonder if you'd just comment on LED pricing and how you see that playing out with margins. And then, Bill, if you could just give us a better sense on the tax rate going forward, if there's any update there.

On the LED pricing, just sort of probably there are two general things going on in the industry. Number one, as I mentioned, there is a lot of demand in the electronics industry today. So I think on the one hand, there might be a tendency to not have the price drop so much. On the other hand, there is a fair amount of competition coming online in producing LED. So that’s the other side of it, and particularly in China, there's some significant ramp up going on for LED production. And these people have access to the same equipment – production type equipment and the same technology to manufacture LEDs that anybody else does, anywhere else in the world. So that is a factor. So I think long-term, we still expect LED pricing to continue to come down.

Comment to your second part, Jim, is on the tax rate. Hopefully I can make this straightforward. We're looking at roughly 40% to 45% tax rate. What's really challenging for us right now with the pipeline opportunities that we have internationally and forecasting where those projects will occur and which country is presenting a challenge. For example, we get a number of right kinds of projects in Dubai where there's no tax rate on those, or in China we're still under tax holiday there, where we're paying a rate of 12%. So the extend they’re in China, the Middle East that helps, to the extend projects come up in Germany or the UK doesn’t help us as much. And when you're in our business forecasting where they end up, it gets to be tough. And so all that aside, we are looking at 40% to 45% as I said.

Okay, thank you.

Jim, if I could just come back and add a little bit about commercial, I think there are some interesting factors there. Over the last six months, if you compare last two quarters if you look at excess large billboard order, we're up in the mid-30% of orders and this last quarter, as Jim has talked about we did exceptionally well on the large contract business within the commercial area. So we are seeing great growth in that area. But the current economic environment is something to watch to see if that has any adverse impacts on especially our standard order business.

Okay. That’s helpful. Thank you, Bill.

Our next question comes from Dick Ryan from Dougherty & Company.

Hi, good morning guys. On the Clear Channel business that came back your way, what got you there? Was it price, obviously was the new 4000 Series, but was it price generated, or are they just looking to split out that business again after it went away from you a year ago?

I think probably a little of both. Certainly the new product offers very excellent performance at a very attractive price points. And I would say that’s a key. I think there's some interest from the – from Clear Channel in having more than one vendor.

Okay. Jim, you mentioned baseball projects in the pipeline. Can you give us an early sense of the, maybe the number qualitatively the projects that are in the pipeline that you're looking at, maybe versus a year ago?

I would say that the number we had early on last year in the pipeline was having 5 or 6 and we've got a few more maybe even in the potential pipeline this year. And I would say that given the activity of what’s taken place on some of those projects I think we're a little more optimistic that we'll see things happening certainly more of them than last year.

Okay, and just a couple of the other divisions, are you seeing any federal funding coming through in helping the transportation side? And then there was a nice – it looks like nice orders in the schools and theaters. Can you talk a little bit about that as well?

Transportation, first of all, right now they have very healthy backlog. So they’ve got a lot that’s queued up. We have the project with the New Jersey Turnpike, which is a potential $25 million project that we have announced and we’ve only booked about eight of that actually in the backlog. So we expect more of that to come in over the next – that's really over the next couple of years that that will come to pass. So that's a positive out there. There is I think just general uncertainty on what the federal government will do for spending that’s kind of hard to predict. I guess on the one hand there is lots of debate on what the economy's going to do. I think if the economy were tend to slow down, that's incentive for the government to maybe do some more. So it's a hard one to read out there right now. We believe we are well positioned in the industry to take advantage of the projects that are there. So that's our approach, just to make sure we're ready to respond and participate.

Okay.

And you asked about schools and theaters.

Schools as well. Yes.

Schools in particular, you know, we had – in general the trend – and this has been a trend over the last few years really that we are seeing maybe in terms of – the unit volume is not really growing and maybe even in some cases is declining a little bit. But the average dollar per order has been going up as there is more interest in message centers and matrix displays along with scoreboards and we had a couple nice projects that we deliver here in this quarter for schools. I think that come to mind the biggest two were down in Texas anyway. And they are both in excess of $0.5 million worth of nice video displays. So there's still interest there. Sports is still an important part of our culture here and so that’s generally strong. Now the offset to that is certainly with the economy here, school budgets are tight and so the new construction, the rate of new construction could be affected by that and there is some correlation between new construction and scoreboard opportunities as well. So that’s a little bit of an offset. So at this point, we're seeing that maybe flat to maybe slightly down here going forward with schools and theaters.

Is there an ad revenue model working into the school side as yet?

So, again, very important point to understand is that these larger systems are not paid for through school funds. They are through sponsorships, local sponsorships for the most part.

Okay and one last for me. Jim, you mentioned the increase in the operating margin, the 4%, not where you wanted to get to. Is there any kind of metrics you can talk about looking out, where you'd like to get, what your goal is for operating margins over the next couple of years?

Well, we would like to be back in double digits obviously. How fast we can get there, I guess that remains to be seen. But certainly that’s – that’s where we want to get to.

Good. Thank you.

Our next question comes from Steve Altebrando from Sidoti & Company.

Hi guys how are you?

Hi Steve, yes.

Can you talk a little bit about the pricing environment, any changes as of late?

I’m sorry, Steve could you repeat that please?

Can you talk a little bit about the pricing environment if anything there has been any changes as of late?

Well certainly the pricing environment as is very competitive. Whether actually a change or not I guess I want to be at the change it’s, I think as of – at the end of the downturn everybody is just a little hungry here and so that’s reflected in the pricing environment. So I think nothing – nothing that’s changed in the past quarter but it’s competitive.

Okay. And any – any smaller suppliers are you seeing any capacity coming off?

Our suppliers?

No competitors really. Competitors, just in terms of anyone kind of shutting the doors just not – not making through the downturn.

Yes. We have – we are seeing here some competitors, and again the ones that are having those kind of problems that of that not much of a factor for us recently. So whether that changes the environment or not for us and that is pretty debatable but, but certainly there are some that are struggling and not probably uncertain how long that would be around.

Okay. And then, on gross margins, this is actually many of ways away and then when would you start to expect to benefit from shifting towards your more modular process of manufacturing?

I think, Steve, I’m not quite sure what you’re asking. We’ve gone through great likes, and have done a great job at implementing lean manufacturing techniques and but I think we are seeing significant benefit for the efforts of our manufacturing. People have put through and had it not been for that, margins would be hurt a lot more than they already are. Is that what you’re getting out or…?

No. You guys have mentioned in the past about shifting the product development essentially towards a more modular approach for your displays?

Well, I think maybe you are talking about our whole DVX and in fact we don’t refer to that necessarily as modular but, but a common module platform and related components, and we’re seeing the benefit of that when I mentioned earlier that our – our order bookings for large contracts went up a little bit, one quarter doesn’t say anything but certainly our margins are being held by our new product introduction primarily the DVX.

Okay.

That – so that is, that is a key component and it’s helping us this quarter as we deployed more – as we sell more of this product.

Is that just – that’s just on the billboard that I – I thought that was something you are moving towards client kind of product, is product live.

Yes that’s what – let me – actually that’s – generally what we’ve been working on since we embarked upon the lean manufacturing a number of year ago, any component of that or a key part of that is standardization and increased standardization. So the trick for us is that we’re delivering a custom solution to our in our large projects, we’ve delivered a custom solution to the customer and we truly can build the display to fit any need at any size that the customer needs, but at the manufacturing level that the – the more of effects made up of standard subsystems the better manufacturing goes so that – that’s what we’ve been working on here and continue to work out so and as Bill said we’ve – we’ve made a lot of progress along that that direction and it’s an ongoing thing. There is always, talk about what’s an ongoing thing and there’s always ways you can improve and add efficiency and improve products. So it’s an ongoing thing, and it will continue to be.

Okay. And then, I am not through yet, too specific but is there – is there an inning that you’re – that you do yourselves as being in, in terms of that process. Is this – you just are just underway here or you know you look a couple of years out and see that being a more material benefit to you guys?

We think about it as continuous improvement so I guess if you think on in terms of anything that you see well the game is going to be over at some point and we don’t see this as the game ever it gets over so it doesn’t – I guess we don’t think about it as analogous to having an inning. It’s just a continuous improvement and I think we made huge strides from where we started in terms of – compared to where we were as we were very oriented with this custom job shop approach and so to continue to be able to be flexible from a customers’ perspective that have much more control of and standardization and the manufacturing process, I would just say we’ve made huge progress and it’s been very beneficial, it is very beneficial to us at this time and that there is always more opportunities.

Okay. Thanks guys.

Right, Steve.

Our next question comes from Steve Dyer from Craig-Hallum.

Yeah. Thanks just one last follow up guys. You went through the whole downturn you’ve made in a very strong balance sheet you continue to add cash to it. Is there a level or you’d consider potentially buying back stock or deploying it in another manner, a deal kind of a cash level that you feel like you want to have on hand?

Well certainly it’s kind of the time we’ll consider those various alternatives and we did that for dividend payment again this year that’s one way to get the cash back to the shareholders. So I guess all options are on the table but we – we on the one hand we have a lot of cash and on the other hand it’s all relative how much cash we have compared to some companies. We don’t have so much so, and I think having some cash on hand is good it gives us some cushion and it allows us to be flexible when opportunities come up.

All right. Thanks guys.

Thank you.

Our next question comes from Jim Ricchiuti from Needham & Company.

The strength you are seeing in international, it looks like you are looking at 20% plus growth in orders. Is that sustainable, do you see some good opportunities as you look at over the couple of quarters and in general, why don’t you like that international business, what would you like to see it represent of your total revenues longer term?

Just in general, Jim, international pipeline right now is strong and it’s – in international first we – we put all of our – if at all our applications whereas in the domestic market we sort of, of the different markets but if you think about the different applications in the international we’re seeing, as I mentioned that Qatar Convention Center was a big order we got from the Middle East this last quarter. But we think that the applications are out there and we are seeing interest in the outdoor advertising is starting to pick up in Europe and in the Middle East as well. So there is some potential there in the – on the Asian side, the displays we’ve got this Phoenix Island project that we’re working on, this large architectural lighting. So there is – we see – we see good opportunities in international at this point. It appears strong.

Do you see this being in your longer term Jim, I think potentially you’ve got 20% of the business, is that – and I am just wondering as you look out over the next few years, do you have a goal in mind for that business?

Well – so that’s tough and we’ve pondered over the years and we have something to do with how fast as the domestic grow too. So that’s – what – suddenly ends up being, so just like that to what percent that would end up or should be as part of our overall mix kind of that’s the number I kind of hard for me to get my head around is just because you got the two moving parts there, domestic and the international but certainly you see it continue to grow, we see opportunity there it’s been difficulty more right around that 10% range in part of our business. I think there is a potential for us to the get them being bigger than that and we are certainly looking to – looking continue to grow the business internationally.

Fair enough. And, Bill may be, this is a question for you. It appears that you turned the corner on the warranty costs, is that a fair way to characterize it or you still feel that there is still some issues you need to work through?

Well, I think one quarter – if you look at the last five sequential quarters, if I’m remembering right, three out of the five performed acceptable but not up to where we want to be at. Two of them were really rough and two out of the last three were rough in terms of warranty so we’ve been through this. I think we need a longer track record at it and not we’re doing the right things, we’ve invested a lot. It’s got to turnaround I believe, are we there yet, it’s too early to tell.

No. I think that’s probably all further takeaway to…

Can you state it?

We are – we’re – we’ve done a lot of things to reduce warranty going forward and so we do expect it to go down.

Okay. Thank you.

Our next question comes from Dick Ryan from Dougherty & Company.

Hi Bill, just a clarification that the tax you indicated40% to 45% is that what we see if you’re looking at for the year or were you talking about the next quarter?

Clearly, that’s fiscal year as a whole.

Okay. Great. Thank you.

I should mention clearly, to the extent, there is a lot of variables as to where it sits right now. If we would have a great deal of success on Major League Baseball opportunities that – that it would improve, so lot of variables that’s seeing how it actually turns out at this point.

Just following up on that about the baseball, the pipeline crushed in and are there new builds in there or is it retrofits or an upgrades to HD and if it’s kind of the retrofit and an upgrade to HD, were are we in that kind of movement? Are we still early in the game if you will, that would get the scoreboards to the HD?

Yeah. These are mostly upgrades – I think they’re all upgrades.

No.

I think it’s normal disruption actually happening to this point. The new construction is predictable. We don’t – it’s going to happen. We’ve got the Marlins in which we already have in our backlog so that’s – that’s not an additional opportunity and that’s for a ways out here yet. But these are – these are all upgrades and, yes going to higher definition is a driving factor there and some cases just adding more displays into the facilities. And it’s an ongoing thing and if you look at the new meadowlands stadium and just the amount of display – displays that have been deployed there, their accessed to new benchmark really in terms of the deployment of display. So what’s the – what’s the level and where is the end point is that’s been -- it’s continuing there. There is a continuing raising bar here that in the industry, so again where are we along the way it’s kind of hard to say because the bar keeps rising.

Okay. Thank you.

I would now like to turn the program back over to Mr. Jim Morgan for his final comments.

Well, thanks for the questions gentlemen, I appreciate that. And in closing, I would like to thank all of Daktronics employees for their diligent efforts again over this past year. And tomorrow evening is our Annual Shareholders’ Meeting and we will have an open house starting at 5:30 with the shareholder meeting at 7 o’clock. Thank you for being with us this morning. Have a good day. Operator, that concludes the call; thanks.

Thank you. Ladies and gentlemen, that does conclude today’s program. You may now disconnect and have a wonderful day.